Here’s why: a major automotive finance company, Santander Consumer USA, recently agreed to a $26 million settlement with the attorneys general of Massachusetts and Delaware for allegedly working with car dealerships that falsified or inflated borrowers’ incomes. According the complaint, “Santander knew which dealers had high rates of borrower defaults, which exaggerated the value of cars, and even identified a group of ‘fraud dealers’ who inflated borrowers’ incomes to get buyers into larger loans than they could afford. Yet Santander continued to do business with those dealers and failed to rein in their practices”.
In addition to the settlement, the Massachusetts AG announced that her office is conducting an ongoing investigation of other lenders and auto dealers.
As a result, more and more finance companies will likely be taking a proactive approach to detecting and preventing fraud perpetrated by dealer employees. This includes more information sharing of dealer risk and fraud patterns among lenders and enhanced pattern recognition technology that flags high-risk dealers.
Up until now, often the worst-case scenario for dealers caught falsifying credit information by their lenders has typically been having to repurchase the contracts in question – basically a slap on the wrist. Although there have been instances where finance companies have reported dealer fraud to law enforcement, that has been a relatively rare occurrence. With the Santander settlement, it seems likely that lenders will be far more motivated to report dealer misdeeds if for no other reason than to protect their own interests.
Some in the industry have opined that with the new administration, dealer regulation will be reduced. Perhaps the federal agencies will be reined in but it’s certainly conceivable that state and local agencies will pick up the slack. For instance, last month the NYC Department of Consumer Affairs announced that it is seeking more than $2 million dollars in consumer restitution and fines from an auto group. Among the allegations – you guessed it – falsifying consumer credit applications.
For those who feel that taking the risk is worth it since “we’ve always done it this way”, keep in mind that these practices may constitute bank fraud. So, you may want to ask yourself a simple question while assessing the downside of getting caught: is my job worth going to prison for?